Is crypto okay?

A TL;DR on what's happening to crypto this past week, and a deep dive on blockchain's impact on the underbanked

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Dani Pico & Tricia Jose
May 18, 2022

Happy Wednesday everyone! It's been a tough week in the crypto world (and the real world) but luckily, we're here to unpack it all together. Strap in, cause it's a wild ride.

Quip of the Week

The Latest

Un-stablecoins = un-ideal: Explaining the LUNA/UST crash and how it affects everything

The Terra ecosystem was the second largest DeFi system in total value locked just a few short weeks. Oh, how the turn tables have turned. A quick primer: Terra has an algorithmic stablecoin: UST. The fact that it is algorithmic is key, because unlike other stablecoins, it is backed by code and not by a reserve. More on this later. Terra's native token, Luna, is intended to work alongside UST to maintain its value by always allowing people to redeem $LUNA for $UST dollar for dollar. What happened was that Luna's market cap fell below the total supply of UST and basically everything went downhill from there.

So... Is it all over?

The whole point of a stablecoin is that it is stable, and with this instability comes massive implications: Bitcoin fell to $26,000 (lowest levels since December 2020) and an estimated $200B in crypto wealth was wiped out in a single day. Regulators are calling for action to crack down on stablecoins and eyes are on the other prominent stablecoins: USDC and USDT to see if the same fate awaits them. It's not all doom and gloom; sentiments from believers seem to still be positive, however it is clear that web3 is no exception to this impending bear market and it is going to be a critical time. Only time will tell what will survive and what will not.

So what does this mean for us?

Ultimately, we didn't get into crypto because it was a lucrative investment opportunity and are therefore still bullish on the underlying opportunities and possibilities within web3, and hope to double down on those. A read we particularly loved is this Theory of Justice for web3, and though all this recent news seems to reinforce the scammy, ponzi-esque nature of it all, our hope is that we use this time to collectively build more solutions that are less focused on 100000x financial returns and more towards justice, public goods funding, governance and better outcomes for all.

Deep dive: Banking the unbanked - how web3 reaches traditionally unbanked communities and why

As we sit at the gate of a bear market, one would think that unbanked communities would be some of the last people to join in on the world of web3. If the traditional banking infrastructure, which has been around since the 18th century, didn't get to them, why would web3 be any more accessible? At least that's what I thought, but there is a lot I didn't understand about the unbanked. This deep dive is a lesson in the unbanked and how web3 infrastructure can help reach and support them.

First off, let's start with defining "unbanked": unbanked individuals are those who are not served by a bank or traditional financial institution. There are many reasons why an individual might be unbanked, believe it or not, most of the unbanked population is not unbanked by choice. Although many don't trust the lack of transparency in the traditional financial systems, most unbanked people are unbanked or underbanked because they are unable to meet the minimum requirements to be serviced by a financial institution, the, ie. minimum amount to open a bank account others are unbanked because of poor credit history, lack of access, prior bankruptcy's, or lack of trust in the financial system.

So what?

There are an estimated 2B (yes, you read that right.. billion) unbanked people. As we learned above, many people are unbanked because they are not able to meet the minimum requirements for engaging in traditional finance. Enter web3. There are many web3 projects under the DeFi (decentralized finance) umbrella that are focused on inverting traditional finance models, cutting out the middle man (in this case, banks) and enabling people to directly perform banking-related activities on the blockchain. Numerous DeFi solutions have popped up as an answer to supporting the unbanked, like sending and receiving currency using KotaniPay a web3 app focused on the African market, and Etherisc providing crop insurance, hurricane protection, and crypto wallet insurance. There is also a range of Blockchain lending applications like BlockFi and Figure which use smart contracts to ensure the loan seeker and the lender have access to transparent terms and verification.

It's obvious that the blockchain opens up huge possibilities for the unbanked and has the potential to grant them access to systems they have traditionally been shut out of but it's important for us to think critically about when and how these applications are introduced. Most of the unbanked population is not just unbanked, they are also financially unstable and oftentimes have lower levels of basic education putting the onus of education and stability on the companies offering these services. Given the variability of the crypto market unbanked populations banking in cryptocurrency introduces an additional layer of risk for these individuals.

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Till next time,

w3 the North